How Bad Of A Neighborhood Is Too Bad?
OK I'm not talking about Watts in the 60's or Ft. Apache in the Bronx but I am looking at a neighborhood that is in Fort Worth's "Neighborhood Empowerment Zone" and I'm trying to see if its worth a second look. These are houses that were built from 1925 to 1950 and these block have just barely started trying to turn around. I was comfortable being in the neighborhood in the middle of the day but don't know what it looks like at night. Going down the streets you'll see a perfectly maintained, well loved house next to a boarded-up shack which sits next to a vacant lot and, yes, that's next to another well maintained home. I do know that there is a drug problem in this area but its gotten a lot better of the past few years. There are a few reasons why I'm looking here. First, obviously, its really, really inexpensive to get into this area. Also, these houses, even though they are old it looks like they've got some good bones (not a professional though). Finally, I am interested in the idea that Fort Worth is offering financial incentives to both owners and investors in the area to get people trying to restore this once charming working class area. So this is what I'm wondering:
First, is there a good way of determining how much more improvement, if any, I should look for before deciding to work in this neighborhood?
Is it possible to work in these lower income areas and make a profit without becoming the stereotypical slumlord?
I think I've made the mistake of becoming too intrigued with this neighborhood so I'd love some advice from those of you worked in these types of neighborhoods.
It sounds like you found the perfect neighborhood. Cheap prices, improving area, city is putting money to improve also.
Maybe you could flip a few to other investors, make some money, and rehab some then sell with owner financing for longer term wealth.
Put up bandit signs all over the area so that anyone who wants to sell will think of you. Own the area. Be the go to guy when it comes to that area.
When you see the nice little well maintained house and next door the board up and then the vacant lot. The flow is started. I hate being a pioneer, some of the indians are great shots. I would like to be the carpetbagger. In the Air Force I always had a desire to be in the high cover squadron or off to the sun side of a bombing raid. Let others have the glory of initial engagement. I always came off the perch when things were just starting to improve. That is why I am alive and it is the same where you are now. Now check for shops, and what kind of activity at night. Is there traffic? do people walk? any exterior table and chairs in front of the restaurants. Now I am not talking gentryfication you are then too late. Just before before. Now I am not talking single race, want the intermix to start cause that is the 2000's Not just whitey no just black no just latino. Slow mix. Introduction of the liberal family that has a child and stays. Might use the Catholic schools or even car out to a good private school. But look for a Magnet Public School near by and that is the biggest sign of all. Nice to watch, even better to be involved. In this type of area your own ownerships are short lived. You make your profit in the mark up as the area gets better and better. Damn I wish my Containers were farther along. I would come into the area and put a three story all glass and steel mixed use Container type. Store all glass on the ground floor. Next floor up an office or residential and on the last floor up strictly residential. Perhaps two or three art school students with jobs.Double ups if necessary. The place all glass and steel and the lights on all night. Remember the more lights on the street the less crime. Then you start neighborhood watch and from the second story the elderly lady looks out on the street as it is interesting and there is your intelligence operator on duty. Something comes down she dials 911. Dealing stops, mugging stops cause they got a snoop on the block. You work on development. Bring back old houses. Open them up inside make them really white and clean modern on the inside. Picture book outside. You should be averaging about $20,000 a turn. Recapture capital and pull profits in paper. Bank the paper, there is your loan source. On and On. its a good feeling seeing a town come alive. Remember in recovery zones to make them fly you mix mix mix.
Enjoy, its a lot of fun and it makes money and most important it is a good thing.
Lucius 8-) 8-)
You can be a leader or a follower. I agree with Ric become the go to guy in the area. Being the leader in the renaissance of an area will do more for your reputation than advertising ever will. Use low interest loans and grants the city is offering. Sell the houses to people who have never owned a home before. Do not rent the houses sell them.
You probably already thought of this....But just in case. Check with the city's planning and or re-development. The people at re-development are the best for giving you an idea of what an area has coming in the near future. Sometimes federal money is on its way. You could be getting in at a great time, especially if your at break even. One last thought, check with the police department's "Community Policing" unit. Don't be afraid if they tell you it's not the best neighborhood. What you want to hear is that they are on board with the "Neighborhood Empowerment" program. This is another sign the city is going to work on turning the area around. Good luck.
I would stay far away from this area!!!!! I know many people who have been burned badly in these areas. Look, the fact is that these people do not have much money, so....they will probably not take care of the house....will propably not pay you rent.....etc.,etc,etc. If I were you, I would spend a little more and get into a better area. Remember, you are investing, not speculating
Talk to the people in the well maintained houses. Find out who they are. Are they young low-income families who have moved in recently, or are they from an older generation who have stuck it out despite bad times in the neighborhood? If it's the first group, then the neighborhood is clearly improving. If it's the second group, then the turnaround hasn't started yet.
Going into this neighborhood is definitely a big risk. But it also has the potential for a substantive reward. If you do decide to go for it, you might want to look for your first properties closer to the local police station, fire house, and major places of employment. I realize that in most neighborhoods, houses near noisy fire houses and police stations may actually be less attractive. But in this case, I think those are already the safest areas and are therefore most likely to develop faster. Unfortunately, unless the police station is like right next door, I think the area around the local schools will be one of the last to lose its drug element. But I'm not from the area and am not a specialist in neighborhood redevelopment projects.
Good luck.
From Lucius: "Recapture capital and pull profits in paper."
Can anyone elaborate on what this means?
Alan
Wow so many night owls! Thanks for the assitance. At this point I have talked to the housing department, the local police department and the local non-profit for the area. I've not spoken to any of the residents yet but it looks like a good blend of different ages and nationalities. There's definately a strong presence of the "old timers" that have stuck it out through the neighborhood's darkest days but there is also a new YMCA day care center and houses with that colorful plastic lawn art by Fisher-Price. As for this "Neighborhood Empowerment Zone" designation; it is one of 14 areas of Fort Worth and this particular neighborhood has just recently gotten this designation from the city. Neighborhoods that have been in this program longer have become historical districts and prices in these areas have gone from the 30k range to the 120k range.
I truly appreciate all the information (and warnings). I will keep you posted on my progress with this area.
Well, I happen to invest in these type of areas all the time as I have mentioned before. Without a doubt you can make money whether or not you are correct in your estimate that the area is on the way up. Facts are facts, and the facts are that the greatest need in rental properties in the US are for properties in the $300-$400/month range. Although property values vary widely across the US, incomes, and especially lower incomes, do not. Even if the area is headed down it will probably not go much further. Here are the things that you basically have to accept though. Don't count on any appreciation. You may get some but that is simply gravy. Appreciation doesn't matter to me since I basically just plan on collecting rents until I pass away and let my kids decide what to do with the properties. I have a secret though. The cash flow on these properties will frequently pay way beyond the appreciation that can be gained in better areas(Don't tell anyone!). Never, never, never, never(sounds like Churchill) let the tenants get behind in rent. At this level they are struggling already and they can never catch up if they get behind. Immediately, as soon as local regulations allow, file papers for eviction if they get behind. Actually, they will usually pay but at this level they often will not have the discipline to pay on time without the threat of eviction hanging over www.them.Even within the worst neighborhoods you can find an oasis. Find properties that are across from public buildings if possible since this will cut down on the dealing. If the houses are decent, simple, cheap to buy, cheap to maintain, and cheap to heat, you have a gold mine. Someone who is making $500/month on SS is going to jump with joy to rent from you even in a bad neighborhood. Even living in what you may consider a bad neighborhood is a joy compared to living in the street in a nice neighborhood. Some people will say that they don't don't want to rent a house that they wouldn't live in. Don't pay any attention to this nonsense. Let them try to live on $500/month and then see if they stil want to try to live in an apartment or house that rents for $1000/month. Lower income tenants can be outstanding tenants since they are often long term tenants and they are frequently less demanding than other tenants. They are basically just like anyone else in most aspects, they simply don't have much money for often very good and even admirable reasons. Wow, I think I may have given away too much information! You don't want to help out the competition too much!
Wow - Great posts, everyone! I'm enjoying the info!
The only thing I'd add is, since you posted this in the Landlording forum, I imagine that's your primary interest. However, depending on what you're looking to do, you might be able to get a great fix-up deal out of the area. Buy one of those boarded-up homes, fix it up, and keep it to rent out.
I don't know the Ft. Worth area, but there's also the possiblity that the city housing authority is wanting to fix-up the area (given that it's historic), and may have a grant program for repairs, or a "matching" policy, where you need to make $15k of repairs and they'll put in $7500 to match your $7500.
Or there's the possibility of getting a HUD-assisted loan, which I'd shy away from, but I have friends who do it all the time. Yes, it involves red tape, but it may be more attractive when you consider its benefits. Most of my friends in the Southeast who deal with HUD loans and the county hosuing department say the red tape is there, but it's grossly overstated.
Anyway, those are my two cents. Depending on your goals, it might be worth a visit to the city or county housing authority and ask about grant rehab funding for landlords. Their requirements may be more than you want to deal with (may require licensed contractor, etc.), but it only costs you time to ask.
KC